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on Informal and Underground Economics |
| By: | Philippe Aghion; Maxime Gravoueille; Matthieu Lequien; Stefanie Stantcheva |
| Abstract: | We use individual panel data and the introduction of simpler tax regimes for the self-employed in France to assess the extent to which individuals' shift towards the simpler tax regimes is driven by tax simplicity and by tax evasion motives. We find evidence of a quest for simplicity from estimating the amount of bunching at the eligibility thresholds for the simpler self-employment tax regimes, and from observing that bunching is increasing in the degree of simplicity of the tax regime. We argue that tax evasion plays a significant role in explaining individuals' attraction towards simpler tax regimes. We develop a structural model to quantitatively assess the importance of simplicity and evasion motives for choosing a simpler self-employment regime. The model suggests a considerable preference for tax simplicity, ranging from 162 to 5654 euros per year per self-employed individual, which in turn entails a sizeable evasion elasticity. |
| Keywords: | self-employment, taxation, entrepreneurship |
| Date: | 2024–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1999&r= |
| By: | Jens Matthias Arnold; Aida Caldera Sánchez; Paula Garda; Alberto González Pandiella; Sebastián Nieto Parra |
| Abstract: | Informality is a long-standing structural challenge of Latin American labour markets, as almost half of people in the region live in a household that depends solely on informal employment. Informal workers are often insufficiently covered by social protection policies, for which the eligibility is often tied to formal-sector employment. The need to reform social protection systems across Latin America to make them more effective and fiscally sustainable has become more salient after the COVID pandemic. This paper argues that a basic set of social protection benefits available to all workers, whether they work in the formal or the informal sector, should and can be put in place, although it would require the ability to raise additional tax revenues. Moreover, the incentives for formal job creation would be strengthened if its principal source of financing for such basic social protection were shifted towards general tax revenues, as opposed to social security contributions, which tend to increase the cost of formal job creation. Reforming social protection systems will not be easy, but these reforms can provide the basis for both stronger and more inclusive growth in Latin America. |
| Keywords: | Labour Markets, Latin America, Pensions, Poverty, Productivity, Social Protection |
| JEL: | I38 J32 J46 O17 O43 O54 |
| Date: | 2024–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ecoaaa:1804-en&r= |
| By: | Renu Bansal (Department of Economics, Delhi School of Economics); Dibyendu Maiti (Department of Economics, Delhi School of Economics) |
| Abstract: | This paper shows that capital inflow can increase formal employment with labor mar- ket rigidity even when cheaper labor is accessible outside the formal sector. In a simple duopoly setting, if subcontracting to the informal sector is strategic to deal with the bargaining power of formal workers, the model finds that better foreign technology and access to the informal sector of the foreign firm reduces the prohibitive tariff for attract- ing foreign capital and can raise formal employment, by limiting the wage rise due to the combined effect of competition, wage, and technology. While the increased capital flow raises the wage through the competition effect, the level of labor-saving technology and the strategic subcontracting to the informal sector moderate it, showing an inverted U-shaped wage curve against the level of technology. After a critical level of technological superiority, the union wage can be limited to a level such that the foreign firm does not need to subcontract. The firm-level analysis across countries reveals that the results are consistent with our theoretical predictions. JEL Code: F13, F14, F16, F21 |
| Keywords: | Foreign Direct Investment, Foreign Technology, Subcontracting, Formal Labour, Unionised Wage |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:348&r= |